Question
Sunland Company has four operating divisions. During the first quarter of 2022, the company reported aggregate income from operations of $204,000 and the following divisional
Sunland Company has four operating divisions. During the first quarter of 2022, the company reported aggregate income from operations of $204,000 and the following divisional results.
| Division | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| I | II | III | IV | ||||||
| Sales | $250,000 | $198,000 | $499,000 | $446,000 | |||||
| Cost of goods sold | 198,000 | 192,000 | 298,000 | 254,000 | |||||
| Selling and administrative expenses | 75,000 | 63,000 | 63,000 | 46,000 | |||||
| Income (loss) from operations | $ (23,000) | $ (57,000) | $138,000 | $146,000 | |||||
Analysis reveals the following percentages of variable costs in each division.
| I | II | III | IV | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cost of goods sold | 69 | % | 90 | % | 80 | % | 74 | % | |||||
| Selling and administrative expenses | 41 | 62 | 52 | 58 |
Discontinuance of any division would save 50% of the fixed costs and expenses for that division. Top management is very concerned about the unprofitable divisions (I and II). The consensus is that one or both of the divisions should be discontinued.
(a)
Compute the contribution margin for Divisions I and II. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
| Division I | Division II | ||||
|---|---|---|---|---|---|
| Contribution margin | $enter contribution margin in dollars | $enter contribution margin in dollars |
(b1)
Prepare an incremental analysis concerning the possible discontinuance of Division I. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
| Continue | Eliminate | Net Income Increase (Decrease) | |||||
|---|---|---|---|---|---|---|---|
| Contribution margin | $enter a dollar amount | $enter a dollar amount | $enter a dollar amount | ||||
| Fixed costs | |||||||
| Cost of goods sold | enter a dollar amount | enter a dollar amount | enter a dollar amount | ||||
| Selling and administrative | enter a dollar amount | enter a dollar amount | enter a dollar amount | ||||
| Total fixed expenses | enter a total dollar amount for the previous two amounts | enter a total dollar amount for the previous two amounts | enter a total dollar amount for the previous two amounts | ||||
| Income (loss) from operations | $enter income or loss from operations amount in dollar | $enter income or loss from operations amount in dollar | $enter income or loss from operations amount in dollar |
(
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Auditing Principles And Techniques
Authors: Prof. A.R. Solanki
1st Edition
9350533979, 9789350533970
